Pound to US Dollar Exchange Rate Forecast: The Pound traded consistently higher against the US Dollar

By on August 14th, 2012.
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The Pound traded consistently higher against the US Dollar throughout last week with every GBP/USD trough being followed by an improved crest as the currency pair appreciated from 1.5547 to 1.5701.The Pound traded consistently higher against the US Dollar throughout last week with every GBP/USD trough being followed by an improved crest as the currency pair appreciated from 1.5547 to 1.5701.

Foreign Currency Market Update – GBP / USD Update

The Pound traded consistently higher against the US Dollar throughout last week with every GBP/USD trough being followed by an improved crest as the currency pair appreciated from 1.5547 to 1.5701.

The beginning of the week was largely characterized by choppy trading patterns. The Pound gained around 0.5 cents on Monday as Federal Reserve Chairman Ben Bernanke’s relatively esoteric speech on the inadequacies of measuring economic output in quantitative terms also mentioned an increased possibility of monetary stimulus over the next few months, which supported riskier assets.

On Tuesday Sterling grew by around 1.2 cents against the US Dollar to reach 1.5684 in the morning in response to better-than-expected Manufacturing Production and Industrial Production figures. However the gains were returned as quickly as an unwanted Christmas present during the afternoon as the latest round of negative UK economic data emanated from the Office for National Statistics. The ONS’ GDP report indicated that the UK economy contracted by a further -0.2% in the three months up to July, which weakened the UK currency.

The decline of the Pound continued in the early hours of Wednesday morning as speculation of a dovish Bank of England Quarterly Inflation Report hampered Sterling. The Central Bank’s report lived up to its billing and featured an economic forecast reduction to practically zero growth in 2012. However Governor Mervyn King spoke of the negative impact that an interest rate cut could have on the struggling UK economy which gave the Pound a massive boost.

Sterling grew by an initial 0.9 cents as investors began to chew up the revelation that the BoE were not considering a further interest rate cut, but GBP/USD fell back by almost that much on Thursday as mild declines in the Chinese economy damaged global growth prospects and increased the US Dollar’s appeal as a safe haven.

However, during Friday’s session the Pound appreciated by over 1.1 cents against the US Dollar as markets fully digested Sterling’s escape from a further interest rate cut. The momentum continued over the weekend with the Pound to US Dollar exchange rate reaching a 2-week high of 1.5727 on Tuesday morning as a lack of economic data accentuated the effect of King’s Sterling-supportive statements.

Looking ahead and it is interesting to note that GBP/USD shares a strong 0.79 correlation with the MSCI World Stock Index, suggesting that wider risk sentiment trends could hold important sway over the currency pair in the days ahead. So with July’s US Advanced Retail Sales figure rebounding from, the previous month’s disappointing, -0.7% all the way to a better-than-expected print of 0.8% corroborating the suggestion from July’s prolific US Non-farm Payrolls result that the world’s largest economy is starting to improve; it is possible that we could see the Pound test resistance levels at 1.5798 that have not been breached since May 22nd.

However if today’s weak German ZEW economic survey results and contracting Eurozone GDP figures are viewed as extensively critical to global growth prospects then support levels at 1.5587 could be tested by the pair.

Heads Up

Summary of major upcoming data releases that we think may move the market.

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